Summary

Sale of sugar mills and Comesa entry spell doom to local sector

Sunday, December 10, 2017 14:48

By GERALD ANDAE

A crane offloads sugarcane from a tractor at Kibos in Kisumu. Next year, five State-owned millers are set to be sold to private investors in readiness for the lifting of Comesa safety nets in 2019. FILE PHOTO | NMG

When State-owned millers are finally sold to private investors next year, unlimited sugar from 19 regional countries will be allowed into Kenya, most likely spelling doom to local factories that are grappling with high costs of production.

Ageing machines and a perennial fight for dwindling raw materials are not making the sub-sector’s future any brighter.

While it costs about $400 to produce a tonne of sugar in Mauritius, it takes $800 to manufacture the same in Kenya. And in a country where price, rather that quality, matters most, millers should prepare for tough times when they eventually find suitors.

This manufacturing cost difference implies that Kenya’s sugar will be edged out of the market with the onset of cheap imports from the Common Market for Eastern and Southern Africa (Comesa) countries, due to their competitiveness.

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Going by recent developments where traders skipped buying the locally manufactured sweetener in favour of imports, the die seems to be cast for local factories.

Agriculture and Food Authority director general Alfred Busolo says private millers should be able to compete with cheap imports from other countries.

“Once the millers are privatised, we have no doubt they will be in a position to compete with sugar coming in freely from Comesa member states,” said Mr Busolo.

Analysts in the sugar sub-sector say privatisation is not the solution to the problems bedevilling local factories, citing Mumias Sugar Company which is still performing badly despite the government having a 20 per cent stake.

Sale of five State factories was not the only reason that Kenya was tabling a request for Comesa safety nets extension.

Kenya has enjoyed safeguards on sugar imports since 2000 and has exhausted the allowable maximum period.

It has been riding on political goodwill for further extensions. The current extension, issued last year, ends in February 2019.

Data from the Sugar Directorate indicates that a 50kg bag of imported sugar sold at Sh3,700 while the same quantity of the locally manufactured sweetener traded at Sh4,000, leaving factories with huge stocks of the expensive commodity.

Traders who buy from them for distribution opted to procure imports for supply to supermarkets.

The Privatisation Commission plans to complete sale of the five millers by August 2018. It is currently conducting stakeholder meetings before inviting bids.

Kenya was given a two-year safeguard extension last year after it argued before the Comesa Council of Ministers that privatisation of government-owned mills had been stalled by a court case.

In 2015, the Council of Governors moved to court to challenge the sale of Chemelil, Nzoia, Muhoroni, Sony and Miwani factories, citing lack of consultation. They were also opposed to the formula used in allocation of shares.

The government plans to sell a 51 per cent stake in these companies to strategic investors and reserve another 24 per cent for farmers and employees.The government will then sell 25 per cent stake of the factories through an initial public offer once the firms are profitable.

Kenya has an annual quota of 300,000 tonnes of sugar from Comesa countries to make up for the local deficit.

The country requires 900,000 tonnes of sugar every year to meet its domestic needs, against a local production of 600,000 tonnes.